Ten Reasons Why Gold Will Remain Above $1250 in 2019
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Gold and its miners have been attracting more attention since U.S. stocks started falling during the fourth quarter and interest rates began dropping. Bullion has gained 10% since its low in August and the GDX has risen over 20% since making its low in early September. The gold juniors have been playing catch-up after being sold for tax-loss into year-end with the GDXJ out-performing GDX since mid-December. Junior gold stocks have historically lagged the sector after the metal, its miners, and royalty firms have made significant lows.
In fact, the tables have turned in the marketplace since GDX hit its low on Sept. 11, 2018. Gold miners, which are historically the most volatile sector to trade before cryptos came along, have been steadily rising in the global miner ETF from the lower left to the upper right. In the meantime, equity investors who had grown accustomed to seemingly endless gains since the election of President Trump, are being whipsawed in “miner fashion” since October 2018.
Although the U.S dollar has been driven down hard this week, gold continues to have trouble breaking the $1300 level. This is no surprise, as there is very strong resistance in the $1300-$1309 region. A pause for consolidation is not only healthy after an 8% move higher since mid-November but justified when trading near this mark. In Q1 2018, we saw the highest volume of contract holders ever witnessed in the history of gold trading when the metal began to rise above $1300 and rose towards long-term resistance at $1375.
Since this record-breaking volume occurred at a relative peak for gold prices, a record number of traders who purchased the metal above $1,300 in early 2018 have been underwater. Now that the price is returning near their respective break-even points, traders and investors who utilize futures contracts are beginning to sell, despite what the U.S dollar is doing in the short-term. Although physical bullion holders may be less inclined to sell amidst such short-term volatility, institutions and funds who operate in futures contracts are generally more oriented toward short-term performance and have begun to sell.
Meanwhile, the GDX is consolidating near the $21 mark which continues to be a magnet since mid-December. In fact, the ETF has closed at $21 in the past 3 out of 4 sessions. This is no surprise either, as this region is formerly very strong support in the global miner ETF after being tested repeatedly since early 2017. When $21 was finally taken out last August, the breakdown became an alarm bell which ushered in a junior gold stock “capitulation phase” into year-end.
What was formerly critical support at $21 in GDX has now become strong resistance, however, the 200-day moving average just below this important level is attempting to become support and is beginning to flatline. A consolidation in the region, as opposed to a sharp move down from it when gold failed at its first attempt to break the strong $1300 ceiling, is encouraging. It appears as though breaking out of this consolidation towards long-term resistance at $25 in the global miner ETF will probably depend on gold breaking out above $1309 soon.
I find it incredibly ironic that the GDX may have made a major bottom on the anniversary of the incident which arguably began a generational gold bull market on September 11, 2001. Since that fateful day, which has been largely responsible for governments systematically enforcing more and more monetary restrictions upon us all, gold rose from $275 to over $1925 per ounce during the first leg of a secular gold bull market.
After a healthy consolidation period below strong resistance around the $1300 region, here are ten reasons why I feel gold will remain above the $1250 mark before eventually breaking out over $1375 later this year:
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